Phyllis, 93, has to take out a new equity release mortgage just to stay in her home. And she's far from alone...

Phyllis Wallbank, 93, has applied for a lifetime mortgage after she was sent a care bill from her council for nearly £5,000.

Mrs Wallbank (pictured below in her youth), who is too frail to feed herself, struggled to pay for the carers who help her with meals three times a day.

With
only £300 in her bank account and desperate to stay in the comfort of
her own home, she applied to release £10,000 equity from her £650,000
cottage.

Sadly, Phyllis is just one of those whose prudence is being punished in their old age.

Mounting fees: Phyllis Wallbank has been forced to apply for a lifetime mortgage

Phyllis says: ‘I’m having to borrow against the house to pay to be fed. I
worked very hard to buy this house, I saved every penny. Now my children
will be left with hardly anything.’

The
widower, who has lived in her cottage in Dorney, Buckinghamshire, for
almost 70 years, and who has three children, adds: ‘I don’t want to go
into a home — I would loathe it. I want to be here, where all my
memories are. This way I can keep independent. I want to die here
looking at the birds and enjoying the view.’

More...

The elderly eating into their homes to pay for care

Soaring care costs and plunging
pension payouts are forcing the elderly to take out expensive equity
release mortgages to pay for care in the home.

Thousands of pensioners are — as a
last resort — being forced to tap in to the wealth built up in their
property as a way of spending their final years in the comfort of their
own home.

One in ten of all pensioners releasing
equity from their homes are now doing so to pay for care, according to
figures from specialists Key Retirement Solutions — one of the biggest
firms offering equity release.

In total, these pensioners took an
estimated £78 million over the past year. Just 12 months earlier, only a
handful of elderly had used equity release to pay for their care bills.

Dean Mirfin, group director at Key
Retirement Solutions, says: ‘Releasing equity to pay for care in the
home is quite a new phenomenon and it has rocketed in the past eight
months. A year ago we saw very few people using this scheme; now we are
looking at roughly 10 per cent.

‘Equity release can be the difference between being able to afford care in the home and having to go into a retirement home.

‘It’s a way of unlocking your money when your wealth is tied up in the home.’

Who pays for care?

There are 417,000 elderly people in
the UK receiving care at home, whether privately or through their local
authority. A further 73,000 receive direct payments from their council
to allow them to arrange their own care. And 388,000 more are in nursing
or residential homes.

By 2025 the number of people expected to need long-term care is due to hit 1.1 million.

The average cost, whether in the home
or in residential care, is currently £26,000 a year — and is expected
to rise to £33,000 per annum in 13 years’ time.

Currently, elderly people have to pay
for care at home only if they have financial assets of more than
£23,250. The value of their home is only considered for those moving
into a care home.

But under a proposal in a report by
Andrew Dilnot on the future of care services (as part of the Commission
on Funding of Care and Support set up in 2010), someone’s property would
also be included in the means test for receiving care in the home.

Why are people using equity release?

If the report is accepted by MPs in June, it could see more elderly people turning to equity release.

But this is a complex product, so it’s vital to understand how equity release works in order to understand the costs.

It is a bit like an ordinary mortgage
but without monthly repayments. Instead of getting a loan to buy a
house, an equity release company hands over a chunk of money to spend on
whatever the person wants.

The most popular type of schemes are
draw-down lifetime mortgages. Typically, this sees the homeowner borrow a
lump sum that they can take from their property in manageable tranches.

The interest builds up at a fixed rate on each chunk as you take it,
and is repaid from the proceeds of the sale of the property when the
person — or both residents if a couple — has died or goes into care.

Equity release is generally open only to the over-55s. On average, borrowers release £48,948 from the value of their property.

Equity release has grown in popularity because it allows elderly people to stay in their own home.

Rates are typically fixed between
6 per cent to 7.5 per cent, which makes it a relatively cheap —
nominally at least — way to borrow money if you are elderly compared
with the cost of a personal loan or credit card. What homeowners get
depends on their age and life expectancy. Those with medical problems
are able to unlock higher cash sums from their property.

However, the disadvantage is that this
interest is allowed to build up over the years — typically doubling the
debt every 11 years.

It can mean other family members are left with no inheritance when the house is sold.

However, reputable firms will ensure they are also not left with any debts.

Peter Barton, from Ashfords
Solicitors, who has worked in equity release for the past 15 years,
says: ‘I’m now getting two or three people a day looking to release
equity from their homes to pay for care.

‘In the past, people felt they had no
choice but to go into care homes. Now they can keep their independence
and happiness by staying at home and receiving care.’

Vanessa Own, head of equity release at
insurance company LV=, says: ‘It is a real concern for people who have
the burden of long-term care costs approaching, as currently they could
be faced with an open-ended bill which makes it difficult to plan
effectively to meet these costs.

‘A large proportion of people believe using their property will be the only option they have to fund long-term care.’